Posted tagged ‘benefits administration outsourcing’

Recruit and Retain Employees with a Creative Benefits Package

April 1, 2011

Kudos to the Affinity Federal Credit Union.  In the Spring 2011 issue of the Affinity Connections magazine, there was an article titled “Recruit and Retain Employees with a Creative Benefits Package.”  We often write about recruitment and benefits in our blogs and this article makes the simple yet important tie-in that you need an effective benefits strategy for attracting and retaining talent.  I couldn’t agree more!

It’s not just about the money, but about benefits that include:

  • Health, disability, and life insurance
  • Tax saving ways to pay for health expenses and child care
  • Retirement plans
  • Opportunities to continue education
  • Flexible working hours, etc.

The article points to a 2010 study done by MetLife on employee benefits trends.  It states employers greatly underestimate the loyalty factor of retirement benefits, non-medical benefits (i.e., dental, disability, vision, life, etc.), and work-life balance programs.  I would also add in retirement savings plans since there are fewer pension plans and great doubts about what will be there for social security, particularly for the younger generations.

The major benefits, which are also the most expensive, are retirement plans, health insurance, and paid leave.  But, employers need to be creative and think out of the box at more cost-effective options.

The study states that 61% of employers and 56% of employees say that work-life balance programs are effective at improving productivity at work.  Examples of such programs include flex working hours and access to financial planning resources, such as Aon Hewitt’s integrated advisory offering to its DC plan participants through its subsidiary Aon Hewitt Financial Advisors.  Other ideas include:

  • Flexible working hours
  • Flexible spending accounts
  • Employee assistance programs (EAP)
  • Matching donations
  • Educational opportunities including on or offsite employee training & seminars, tuition reimbursement, and paid time off to attend classes.

As the economy recovers, turnover will increase.  As the talent marketplace becomes more competitive again, it is important to see that offered benefits are utilized.  A benefits outsourcer or HRO provider can help with data mining to analyze benefit utilization patterns across key positions and geographies.  Also, total rewards statements help employees see the full impact of their benefits.  Modern benefits communication and decision support tools help participants know about and make optimum choices.

Outsourcing vendors, not just benefits providers, but also RPO providers who are helping their clients with talent management including attraction and retention strategies, should be engaging with their clients to ensure that they have a better benefits package than their competitors!  How do you stack up?

Gary Bragar, Lead HRO Analyst, NelsonHall

Learning Services Acquisition Frenzy

March 17, 2011

Last year, we wrote quite a bit about all of the M&A activity in benefits administration including:

  • Towers Perrin and Watson Wyatt completing its merger to become Towers Watson
  • ACS, a Xerox Company acquiring ExcellerateHRO
  • ADP acquiring Workscape
  • Aon acquiring Hewitt to become Aon Hewitt
  • Other acquisitions made by vendors including Mercer, Xafinity, and Capita.

Will learning be the next HR service area abundant in acquisitions?  Although we have seen learning services acquisitions in the past, including ACS acquiring Intellinex in 2006, and will likely continue to see more in the future, I don’t believe we will see any in learning that are equivalent in scale to the large benefits acquisitions.  However, if there was an award for the number of acquisitions in a short period of time, it would have to go to General Physics Corporation (GP). On March 10th, GP acquired RWD Technologies for $28m, its 8th acquisition in the past 18 months.  RWD is based in the U.S. near GP in Baltimore and has three additional U.S. locations as well as offices in the U.K. and Colombia.

GP got RWD at a bargain since RWD’s consulting revenues were $65m in 2010.  RWD was hit hard by the recession and GP came along at the right time with cash on hand.  As a result of the acquisition, GP inherits RWD’s IT learning expertise, where it had little prior experience.  The acquisition also strengthens GP in the petroleum, manufacturing, and automotive sectors.

Last month, GP acquired Communication Consulting to expand delivery of its training services in China.  GP’s other acquisitions were made in the U.S. and U.K. between September 2009 and December 2010.

GP’s 2010 revenues were $259.9m, an increase of 18.6% compared to 2009.  Growth was attributed to increased volumes from existing clients, new contract awards, and its acquisitions, which had the greatest impact.

Moving forward, what will happen?  Well for one thing, don’t count GP out from making future acquisitions.  GP still has ~$35m in revolving credit after the RWD deal and has stated that they will continue to seek acquisitions to grow globally.  However, with so many acquisitions, GP now faces the challenge of creating an integrated client experience and cross-selling into the strengths of these acquired companies to continue its rapid pace of growth.

It will be interesting to watch as things unfold this year.  In the meantime, we can finally put to rest the question “what’s happening with RWD”.

Gary Bragar, Lead HRO Analyst, NelsonHall

The Yellow Brick Road to Financial Growth in Benefits Outsourcing

March 10, 2011

There are a variety of ways to grow HRO service provider income. Well-traveled roads include winning new clients or expanding services with existing clients. Another avenue is to cross-leverage consulting and outsourcing to build revenues for other service lines. Now, a new path has emerged and it looks like a yellow brick road to generating revenues: provide advisory services directly to defined contribution (DC) plan participants and not just to the plan sponsors.

According to The Financial Engines National 401(k) Evaluation report, approximately three out of four participants are not on track to comfortably retire by age 65 (i.e., they can’t replace 70% of their pre-retirement income with their 401(k) and social security). In addition, 34% do not have diversified portfolios and/or have inappropriate risk levels and 39% of participants do not contribute enough to even receive the full employer match. With DC plans replacing traditional pension plans for many employees, effective participation has taken on increased importance.

Participant DC service options were greatly expanded by the Department of Labor’s regulations, starting with the Pension Plan Act of 2006. Now, DC plans can offer automatic enrollment into qualified default investment alternatives, automatic saving escalations, and investment advisory services. Great, but the regulations are complex and are still being clarified and there are fiduciary responsibilities that must be addressed to provide a safe harbor to the plan sponsors and appropriate protections for the advisors. For BAO providers who have the expertise and fear not to tread on a road still under a bit of construction, this is a growth opportunity.

Amy Gurchensky, one of my NelsonHall HRO colleagues, just added tracking service coverage of Aon Hewitt’s new integrated advisory offering for its DC plan participants through its subsidiary, Aon Hewitt Financial Advisors. Aon Hewitt continues to expand its wealth management and retirement financial services for employers and participants. In 2010, before the merger with Aon Consulting, Hewitt had acquired the investment advisory firm EnnisKnupp.

Aon Hewitt selected Financial Engines to be the sub-advisor and provider of the advisory platform. As Amy notes in her analysis, Financial Engines also provides services for ACS, a Xerox Company, Fidelity, Mercer and others like ING and J.P. Morgan. It is important then that Aon Hewitt is wrapping the standard third party offering in with its own materials so it will be able to extend a new service bundle that creates differentiation.

The bulk of retirement investment consulting revenues will continue to come from services to the plan sponsors, but adding a new road to growth in ancillary services is valuable and this one looks particularly golden. Given the millions of participants with the major BAO players, participant investment services will be a valuable win-win for the employers, participants, and service providers.

Linda Merritt, Research Director, HRO, NelsonHall

Where the Action is At in HRO

March 8, 2011

As a follow-up to my colleague Linda Merritt’s blog last week titled “HRO is Settling in for a Good 2011,” I thought I’d write about where the most action is at thus far. If you were thinking recruitment, good guess, but it is actually benefits administration leading the way in the number of announced contracts in 2011.

In addition to Mercer being awarded a pensions administration contract by Loomis UK Ltd., which Linda also wrote about Mercer in her February 23rd blog, a number of providers have announced important contract awards, including:

Fidelity Investments, after two big five-year contract awards in Q4 2010 by AT&T and Office Depot, in January Fidelity was awarded a five-year contract renewal for total retirement outsourcing (TRO) services by BP America, Inc., a subsidiary of BP. Fidelity will continue to provide administration and recordkeeping for BP America’s 95,000 DB and 48,000 DC and nonqualified deferred compensation plans for U.S. employees. Later in the same month, Fidelity was awarded another five-year contract renewal for TRO services by HP in North America. Under this deal, Fidelity will service all of HP’s retirement plan participants, adding 162,500 participants from EDS who were previously serviced by other providers. In total, Fidelity will serve more than 135,000 DC participants and more than 192,000 DB participants for HP.

Aon Hewitt, in February announced it had gone live with eight new benefits administration clients since the beginning of the year. Across these clients, Aon Hewitt has implemented 12 services including DB, DC, and H&W and has added more than 325,000 participants and retirees to its base of 22 million participants.

Capita, in February was appointed as a preferred supplier for the administration of the Teachers’ Pension Scheme (TPS) by the U.K. Department of Education. This is a seven-year, £80m contract renewal that starts in October 2011 and includes an additional three-year option. A week later, on a smaller scale, Capita won a three-year occupational health services contract by Technip. Capita will provide its Wellness Assessment Surveillance Portal, which gives centralized visibility of health surveillance records to Technip’s 3,000 personnel in Aberdeen and offshore locations.

So will benefits administration continue to be hot this year? I believe it will, though it might be hard-pressed to exceed RPO for the full year in terms of number of contract awards.  As evidenced in the examples above, there are huge volumes of benefit plan participants that are serviced and in today’s economy, clients cannot afford internal resources to manage these programs, nor do they have the expertise and most up-to-date technology. Handling benefits administration is vitally important to employees and retirees, whether it’s the ease of an annual online enrollment or the knowledge of a service center professional in answering DB and DC questions. And it’s not just large companies that need this expertise.  As I wrote in my February 25th blog, mid-market HRO is rapidly growing as well.

A final thought about what will continue to drive contract awards in benefits administration is that buyers are increasingly looking to consolidate their outsourcing services under one provider, as evidenced by Fidelity’s contract with Office Depot. This is a trend I believe will continue and from an employee and retiree perspective is a good thing. I was fortunate enough to leave my long-term employer four years ago with H&W benefits, DB & DC plans, and voluntary benefits, of which all four were provided by four different vendors. Sounds like I should play the number four!

Gary Bragar, Lead HRO Analyst, NelsonHall

Benefits Administration Outsourcing — Mercer has an Ace in the Hole

February 23, 2011

Mercer held its cards during the 2010 benefits administration merger poker marathon while others drew cards to fill in service lines, add scale, and expand geographically. Satisfied with its service mix and global coverage, Mercer decided to play its own hand with a benefits portfolio of consulting, outsourcing, and investment management to leverage growth.

Revenues for Q4 2010 were $910m, up 5% in constant currency and outsourcing was up 5% to $180m. Full year revenues came in at $3,478m, up 2% and outsourcing was up 3% to $671m. The U.S. led with the largest share of growth and Canada, U.K., Latin America and Asia Pacific also showed gains.

Mercer’s hand is stronger than it may appear from the 2010 results. While the first half of the year was slow, Q3 and Q4 showed accelerated recovery from the recession. Health and benefits consulting revenues increased 8% for the second quarter in a row. Rewards, talent, and communications consulting was up 15% for Q4, compared to only 2% for the year. The recent positive trends indicate that employers are ready to address employee benefits issues.

Mercer was awarded 25 new outsourcing contracts in 2010, which crossed the full service line-up of DC, DB, and health and welfare. One deal was for TRO (DB + DC) and four were for TBO (DB/DC and H&W). FOX Entertainment and Halliburton will be new global services clients. In 2009, Mercer also signed 25 new contracts. The key difference between the past two years is the number of participants added. In 2009, it was ~400k and in 2010 it doubled to ~800k. In addition, renewals are exceeding expectations, which together with the new clients should up the ante on outsourcing revenue growth for 2011. This is all good, but the real magic in having a balanced portfolio of services is if you can cross leverage each component to strengthen the whole.

The added advantage for Mercer, its ace in the hole, may be its capability to coordinate and collaborate across service lines on behalf of its clients. For example, it is seeing an uptick with bundling consulting and outsourcing services because of the close relationship. Escalating health care costs and compliance complexity (even with the U.S. health care reform wild card) continue to attract joint consulting and service opportunities, especially for the mid-market where the new business pipeline is filling nicely. Areas under cost pressure that can bring hard dollar savings, like total absence management and wellness initiatives, should also be places to double down for growth.

Mercer’s clients have a single relationship manager, no matter how many services and locations supported, who is measured on client satisfaction, not revenues. The same set of consistent performance elements and satisfaction with all areas touching the client are rolled up at the account level.

Mercer’s client focus is more than business strategy, it is cultural and structural. What’s your HRO ace in the hole?

Linda Merritt, Research Director, HRO, NelsonHall

Q4 2010 HRO Ends on an Up Note

January 5, 2011

While we wait to see 2010’s full year HRO financial results, we can review activities in the fourth quarter.  HRO growth is occurring across most industry segments, with the public sector lagging.  The fastest growth rates are still outside of the mature economies in North America, U.K., and Europe for the global providers, although the U.S. is starting to rebound.

Benefits administration showed a nice level of new business activity, even in the mature areas.  Congratulations to Fidelity for the competitive wins of AT&T for both defined contributions and defined benefits and Office Depot for broad benefits administration services.  There were also notable benefits wins by Mercer, Aon Hewitt, Ceridian and Xafinity.  Meanwhile, we are still waiting for a major jump start in learning and multi-process HRO contracts.

The volume of new business and growth with existing clients will continue to rise in 2011, but the pricing environment will not likely ease much in 2011 as buyers remain price sensitive.  Maintaining efficiency will be critical in order to win with both clients and investors.  For example, The Right Thing recently introduced dedicated Solution Teams to manage the transition from sales and implementation into operations. Managing implementation was a costly problem for service providers and customers in multi-process HRO for years, so it is good to see the lessons learned extending to other areas of HRO.

Preparing for further growth also continues in partnerships, mergers, and acquisitions.  Aon Hewitt is expanding its benefits capabilities in Scotland via a pension services partnership with Babcock International Group.  Towers Watson is jumping back into the benefits fray with a partnership with Wage Works and the acquisition of Aliquant, a mid-range benefits service provider.

Fourth quarter good news stories continued with revenues up in most areas of HRO.  Several HR service providers reported a 4% to 6% increase in revenues including ADP Employer Services up 6%, Aon Consulting up 4%, and Mercer up 6%. RPO and staffing companies continued recovering at a rapid pace, leading the way out of the downturn just as they led the way into it.  Revenues for Manpower were up 19% and The Right Thing’s revenues were up 30%.  GP Strategies, Kelly, and Kenexa all had increased revenues in the mid-20% range.

Operating margins are remaining consistent as the HRO industry adds back employees indicating they will be able to manage growth while keeping an eye on hard-won profitability.  Investments in technology and global service delivery capabilities will now be bearing fruit and should also support margin growth.

Happy New Year – may 2011 be a great year for us all in the HRO community in every way!

Linda Merritt, Research Director, HRO, NelsonHall

HRO Confidence Jumps 13 Percentage Points, Per NelsonHall’s 4Q10 Index

December 14, 2010

What a difference a quarter, or two, or three, can make! NelsonHall’s just-released 4Q10 HR Outsourcing Confidence Index found that 54 percent of respondents are much more confident about the health and growth of the HR outsourcing industry over the next 12 months as compared to the previous 12 months. And this number is up from 41 percent in 3Q10, 33 percent in the second quarter of 2010, and 27 percent in 1Q10. 

The primary drivers for this boosted confidence are increases in both new contract awards and in providers’ pipelines. The strongest pipeline is in RPO, followed by outsourced payroll (especially in the SMB market, as providers are offering better technology and services targeted specifically to this segment) and then outsourced learning services.

In terms of revenue growth, based on financial results for the period ending 3Q10, RPO led the pack, followed by payroll, learning, benefits administration and multi-process HRO (MPHRO) taking the next four rankings. It should come as no surprise that RPO took the top spot as contracts continue to be awarded weekly. As I’ve written about before and consistently hear during discussions with RPO providers, growth in this space is about scalability to meet demand while lowering fixed costs of dedicated internal resources when volumes are low, while, of course, simultaneously improving quality of hire.

At the opposite end of the spectrum, MPHRO is facing significant challenges due to a range of factors – especially risk aversion, which in turn is driving more point solution deals – but it is by no means dead. If I were an MPHRO provider, I would continue to hold steady as MPHRO contracts are being awarded, albeit smaller in scope than in the boom years of mega deals.

As for expected HRO growth by geography in 2011, on our 1 to 5 scale, with 1 being lowest and 5 being highest, we see:

  • U.S.: 4.6
  • Asia Pacific (overall): 4.3
  • U.K.: 4.1
  • Europe: (overall) 4.0
  • Central and Latin America (overall): 3.9

I believe all these indicators point to a move out of the mucky waters HRO has been slogging through for the past eight quarters. Further, I believe the U.S. and other regions will continue their outsourcing trend as companies try and continue to grow their strategic businesses, while offsetting costs associated with non-core areas (and companies’ views of what IS core are changing quite substantially.) Finally, I believe we will continue to see more multi-country and multi-continent point solution HRO deals as companies look to standardize those processes and implement best practices provided by a single, best-of-breed vendor.

Gary Bragar, Lead HRO Analyst, NelsonHall

The Benefits Administration Complex

November 30, 2010

One of the emerging trends identified in NelsonHall’s 2010 “Targeting Benefits Administration” market analysis is the pending globalization of benefits administration and health management programs. While provided benefits vary by culture and country mandates, total benefits costs are of concern to every employer.

Global payroll and the integrated employee data it can facilitate has been a theme for a while now in HRO and payroll outsourcing. Total labor cost has many elements, and benefits, wages and salaries are the biggest drivers of on-role employee expense. Once the tools are in place to establish today’s workforce status, the next challenge is to better manage the investment and prepare for tomorrow’s needs.

For example, balancing total relative compensation equity and a locally compelling employee value proposition requires extensive internal and external data, as well as depth of knowledge in changing regional workforce trends and issues. An HRO service provider that supports integrated global employee data, enhanced reporting and analytics with up-to-date sources of in-country and regional knowledge can be a value added strategic partner for internal HR operations. 

Health care costs are continuing to rise, and premiums are expected to be up 14 percent this year in the U.S. Use of consumer-driven health care programs is still growing, and increases the need for effective communications, decision support tools and flexible spend accounts. Also, look for the use of flexible benefits plans to increase as employers adapt to not only global but also multi-generational diverse workforces.

Even when employees are in a country where the employer does not directly fund health care coverage, labor costs are driven up through expenses related to paid absences as well as through the additional staffing or contingent workers needed to maintain coverage. A disruptive amount of absences can lead to increased turnover and decreased customer satisfaction and financial results.

As I have mentioned in prior blogs, health in general is a growing employer concern. We are seeing more proactive programs that cross from managing health expense for insurance and illness into employee wellness and workforce productivity. The opportunity this represents is huge, but not without risk for employers and service providers.

All of the points above, and more in the full report, demonstrate the increasing complexity of even basic benefits administration. There is going to be less and less room for plain old operational benefits administration that is little more than automation of paperwork and record keeping.

Buyers, look beyond operational cost, as important as that is, and select a service provider that can also offer true total benefits outsourcing. HRO and benefits providers, have you made the investments, expanded your geographic footprint and service offerings, and fully tapped the knowledge sources of your employee and supplier networks to become the partner of choice in the new world of the benefits administration complex?

Linda Merritt, Research Director, HRO, NelsonHall

The Changing World of Benefits Administration Outsourcing

November 17, 2010

I am pleased to report that NelsonHall recently published its “Targeting Benefits Administration” market analysis, and that it is chock-full of valuable findings on where this market segment is and is going over the next several years. To begin with, we expect a moderate growth rate of 4.8 percent for overall benefits administration through 2014. The Health & Welfare (H&W) segment, which covers H&W administration, reimbursement accounts, leave of absence and COBRA/HIPPA administration, remains the most dynamic part of the benefits administration outsourcing market, and will continue to bring the most opportunity for growth at a robust rate of 11.6 percent.

Total retirement outsourcing (TRO) is currently the largest portion of the benefits administration market at 67 percent. But that share will decline to 54 percent by 2014 as H&W’s share increases from 31 percent to 43 percent. With its maturity, the continued decline in defined benefits plans and economic pressures on defined contribution plans, the opportunities for growth in TRO will be hard to come by.

On the other hand, many of the major benefits administrators are also major benefits consultants, and the opportunities for consulting will offer more growth. Plan sponsors still need to reduce administration costs and provide a quality employee experience, and it is likely that more plans will close. Combined with the activity driven by the boomer generation moving through the retirement process, this should lead to improvement projects that help offset the lower covered participant populations.

Investment consulting is another growth area for plan sponsors and participants. In the U.S., regulations have changed to allow both greater information provision and automatic enrollment. Hewitt (now Aon Hewitt) is capitalizing on this trend through its acquisition of EnnisKnupp to add to its investment advisory services, and Mercer is partnering with Robert Powell to increase financial analysis and retirement advice.

The high rate of M&A activity in 2010 was largely about growing H&W capabilities through acquisition and partnership. Consumer directed benefit capabilities, wellness, advocacy, dependent audits, retiree health care services, absence management and flexible spend accounts were all subjects of acquisitions and partnerships this year.

With the highest growth rate, expect continued H&W activity into 2011. ADP’s CEO, Gary Butler, was quite open during its recent 3Q 2010 earnings call that the company is assessing further movement into the health care arena, even as its integration of Workscape is underway. Given that H&W continues to be one of the hottest areas of NelsonHall client inquiries, I am sure it is not the only HRO service provider considering further expansion plans in this area.

Some of the drivers for benefits administration outsourcing have been reprioritized and new concerns added, reflecting the continued slow and uncertain recovery amidst ever escalating health care costs. While the number one driver, reduce operating costs, has not changed, new is access to quick ROI-related results, which has really opened up the market for point solutions like dependent audits and leave administration. Jumping up in priority is help in navigating the complexities and requirements of regulatory compliance and changing legislation.

Look for more on the changing world of benefits administration outsourcing in upcoming HRO Insights blogs.

Linda Merritt, Research Director, HRO, NelsonHall

HRO Themes at the HR Tech Conference: Portals, Platforms and Self-Service

October 7, 2010

If you’ve never attended the HR Tech conference – which was in Chicago last week – I highly recommend finding a way to do so next year (and not just because the venue is changing to Las Vegas.) It’s always a top-notch conference with a superior speaker line-up, and a great forum for meeting with HRO buyers, providers and pundits.

With my eyes and ears focused, of course, on all things HRO, the key themes I witnessed – during both public sessions and private meetings with providers – were portals, platforms and self-service, all geared toward improving the customer experience and getting work done as quickly and easily as possible. By-the-drink-pricing and quick solution implementation were also key focuses. Some examples:

  • Caliber Point’s recently launched multi-tenant HRO service, called Republic. For mid-market organizations with between 2,000 and 15,000 employees, it’s a SaaS solution based on Oracle and includes software hosted and maintained by Caliber Point covering payroll, recruiting, performance management, compensation, employee benefits, time and attendance and reporting. Pricing is per employee per month by country, which covers both software licensing and BPO services, and implemetation can be completed in as quick as six – eight weeks.
  • ADP’s new portal and mobile developments, to be launched by early 2011. I must admit that increased mobile access to HR information, anytime, any place, didn’t wow me until ADP used the example of getting a listing of your in-network benefits and providers on your mobile phone. Think about it…you’re out of town on holiday – without your laptop – and you cut your foot on a piece of glass on the beach or sprain your ankle while skiing. You could pull your insurance card from your wallet or purse and call the 800# to find a local in-network provider. But, with instant access to the information on your mobile phone, why wouldn’t you take the quick route?
  •  Mercer’s integrated rewards and talent management offering, called Human Capital Connect. The technology platform includes performance management, succession planning, compensation and incentives. While a third-party provider can’t replace an in-house manager’s performance management responsibilities, Mercer provides not only the technology but also consulting for implementation, training, change management and execution, and a dedicated client team to ensure success. 
  • IBM’s transformation of its HRO client Kraft’s employee portal, with enhanced self-service, phone-based call center support and live chats with call center specialists. During its session at the HR Tech conference, Kraft stated IBM’s recently established Manila HR Services Center is getting high marks for customer satisfaction and intuitive and user-friendly employee self-service. And we can anticipate this contract, which will further roll out into 2011, will continue to support Kraft’s approximately 140,000 employees, per its acquisition of Cadbury, with the same improved employee experience, including further enhancements to live chats.

Yes folks, today and into the future, we’ll see rapid developments in portals, platforms and self-service. But these technological developments won’t remove the “human” element from HRO. Rather, they’ll increasingly support the way humans need, want and expect to accomplish their tasks and jobs, at an increasingly attractive price point.

Gary Bragar, Lead HRO Analyst, NelsonHall